Zero up-front costs for a CS education

featuring Austen Allred, CEO & co-founder of Lambda School

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What would be the impact on the world if a Computer Science education was available to you completely free of charge until you get a job in that field paying $50,000 or more? That’s the question that drives Austen Allred and the team behind Lambda School. Lambda School is a revolutionary new school that invests in its students and they completely align their interests with their students. Seems like a novel idea, right? But Austen’s path to Silicon Valley was where things began for him, so that’s where we’ll start today’s conversation.

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Transcript

Basically, I wanted to get to Silicon Valley, but I had no money, and I had – yeah, basically no money. [laughter] Long story short, I found a blog of a guy that had been living in his car in Silicon Valley, and figured, “Hey, I could do that. Then I don’t have to have money.” So I packed up in a Honda Civic and I drove across the country, and lived in my Honda Civic for four months.

No, I had been kind of used to a little bit of a minimalist lifestyle for that, so I was more prepared than I would be today, for example… But still, it was difficult with regard to perishable food, you have to be out in the morning before it starts heating up, because it gets too hot, you have to go somewhere to work out and shower, which probably creates good habits… But definitely not convenient, in any way.

So before you got to Silicon Valley, what were you trying to do? You said you didn’t have much money, so where were you at in life? Were you just out of university, were you – just passed a degree? What was your state of education and also means?

I was going to school. I was a couple semesters into studying advertising at Brigham Young University in Provo, and I’m pretty much just bored out of my mind… So I eventually decided that I couldn’t handle it, and just needed to get out, and needed to get to the Valley now instead of waiting, which felt like a very – I don’t know, it felt irresponsible.

But I was just going crazy. I was sitting in classes all day, felt like I wasn’t learning as much as I should, felt like there was all this exciting stuff happening and I wasn’t a part of it, and I just wanted to go be a part of it right now.

So was Lambda School always what you wanted to do, or…? When you were driving to Silicon Valley, I’m assuming in the Honda Civic, you were thinking something - what was on your mind? What were you dreaming of?

[00:03:48.20] At that time I wasn’t really sure… I knew I wanted to start something, I knew I wanted to be in tech. When I was younger, I actually had this random chance to sit down for half an hour with some NASA astronaut… I asked him basically “How did you end up being an astronaut?” Surely it’s every kid’s dream, or it seemed likely to me that every kid wanted to be an astronaut; later I learned that that’s not actually what literally every kid wants to do… But how did you get there, and why did so few other people?

He said - and this still resonates with me - that his entire career, what he did was just try to figure out what he thought was the most exciting, and figure out how to get in the middle of it… So that was basically the entirety of my goal. I knew that Silicon Valley was exciting, I knew I loved tech, I loved the internet, I loved computers, so I just wanted to get in the middle of it. That was pretty much it.

It actually didn’t become a thing until years later. I ended up working at a marketing agency, I worked at another company, I worked at a lending company in San Francisco on the growth team, and after all of that we started Lambda School. So it was a pretty long journey.

Funnily enough, it was me and my co-founder; his name is Ben Nelson. He was living in Utah at the time, and it wasn’t necessarily our plan for what Lambda School is today to happen. I wanted to start something, so that I could run my own company and not be beholden to other people.

Originally, it was just going to be a bootstrapped code school that was entirely online. We figured the market would be bigger. Then as we started working on it, we realized that the traditional model of code schools is totally broken; you can’t actually serve the people who want to attend the most, because they don’t have money, which is kind of the point… And yeah, we felt like the entire space just needed to be rethought from the ground up.

We talked to a lot of students and said “What is it that you’re looking for?” and basically everybody said “I want to get into software engineering, but I can’t afford the risk. Is there any other way I can pay for this after I’m hired?” So we started figuring out how to make that work, and it’s been a couple years since then now, and it’s a very different company today than it was then.

So this idea of charging zero tuition kind of came by way of trying to bootstrap, trying to get there and realizing “Hey, there’s actually a lot wrong with this model, and we shouldn’t be building what everyone else is trying to build. We should be building something similar, but very different in terms of the economics.”

Yeah, that’s exactly right. We originally started out just, you know, “We’re going to be yet another code school, that was entirely bootstrapped, the same as other hundreds of schools.” We started talking to our customers, trying to figure out what needs to be different. That’s when we really stumbled upon the model that we have today. It’s taken a lot of work to make that model make sense, but really it was “What do our students want? What do our customers actually want, and how can we give that to them, even if it’s something that is very difficult to deliver?”

We started out bootstrapped, and basically we learned that if we had a few people pay upfront, it would pay our costs; it was just me and my co-founder at the time, and we were willing to live on ramen. Then we could just build up this catalog of people who had attended, and who got a job, and we could just kind of build up this big backlog on our books of people that owed us money, over a long period of time.

So we started out by saying “Hey, let’s figure out how to make free work.” We wanted it to be longer than a normal code school, so we said “Hey, let’s make it six months instead of three months. Let’s charge $20,000 instead of $10,000, and if we get one or two people to pay upfront, then that funds the rest of the class.” And we did just that.

[00:08:12.23] We applied to YC saying “Hey, we’re trying this free thing, and a ton of people are applying, so it seems like there’s a business there, but we don’t know what it is, nobody knows what it is”, and that’s basically how we got into YC. Then we started figuring it out from there. That was less than two years ago.

Y Combinator was crucial for us. Mostly when we got started there were a couple subtle things that they changed, or helped us change rather… For example, we said “Okay, we’ll do one cohort every six months, and then when that cohort graduates, those guys will all go get jobs and we’ll start another cohort.” And YC said “By the time you guys grow to any kind of scale, you’re gonna be four years old, and that’s just a really long time. What would it take to start another cohort next month?” We’d just never been thinking about it up until then. For some reason, our minds were “You do one cohort after the other, and you just rotate them through”, which that’s how all the physical schools work. But YC said “Why can’t you just stack them up on top of each other?”

Correct. Yeah, so why only do two a year; why don’t you do one a month? If we would have done two a year, then we would have been on our third cohort right now. Instead, we’re about to start our nineteenth web cohort, and we’ve got probably 20 other cohorts running… So it was just a fundamentally huge decision.

So the economics is one thing, but then having the talent to actually educate is another thing. We actually just did a call recently, on a different show - we have the network called The Changelog - and we were talking about why smart software engineers write bad code. And it’s basically a dichotomy between Academia and industry, this separation. How did you build a team that could educate the future software engineers we need to have?

Yeah, I mean – I’m not a teacher; my co-founder was a pretty good instructor… And then we basically hired one of the best instructional designers in the world. That’s one of the reasons that we’ve been successful up until this point. We really had to rethink instruction from the ground up; we had to rethink “How does teaching work? What does a school look like? Why does it look like the way it does? What should it look like? What should the student experience be day-to-day and minute-to-minute?” There’s no way I would have been able to figure that out on my own. We needed world-class experts as far as that goes.

I think one of those things where every software engineer thinks they’re a good teacher, but teaching is a highly underrated skillset. It’s much more difficult to achieve than people assume it is. So yeah, I think that was one of the key decisions that we made, and we’re still seeing the benefits of that today.

Everything’s online, right? I’m curious how you merge what you just talked about there - the need for the talent, but also the ability to instruct and the education experience, so to speak, the curriculum… But then also marrying that with being anywhere. From what I understand, you take applicants in the United States and the European Union, so that means you’ve got two dramatically large areas in the world to use as a base, so to speak… But that means that they can come on to Lambda School from anywhere. They don’t have to be there physically; that means, potentially, custom software. What’s the software back-end behind things? Not so much the tech, but how much did you have to build to get to a concept to actually bootstrap and run on?

[00:12:25.13] In the early days not too much. It was pretty much Slack and Zoom. One of the things that people don’t realize as much about Lambda School is that it’s still live and interactive. There’s actually a live instructor on the other side, teaching you in real-time. It’s not a mook that we throw up on a platform and you just view the videos at your own pace. So the software aspect wasn’t difficult; it was “How do you get people to participate in an online environment, the same way or better than they would in a physical environment?” All that kind of thing.

That’s really interesting, because [unintelligible 00:12:59.23] code school that does a significant presence on-site that isn’t just live videos; it’s different than you’ve designed it. It’s interesting how you came to that position though, to do things live… Were there early iterations that got you to that, or was that sort of the way you began and it was just sort of smart luck, so to speak, to land there first?

It’s really the way we began. When we initially started talking about Lambda School, we were talking about “Should we do online or in-person? What should the model be?” We decided online made more sense. It’s a lot more difficult, we hoped we could figure it out. And it’s obviously more scalable, a lower cost basis etc. if you’re online. So yeah, we just kind of jumped in and said “We need to figure out who it works”, so for us the idea of having it pre-recorded - it didn’t make sense to us; we wanted it to be a real classroom experience, so to speak.

Yeah, so it’s 8 AM to 5 PM Pacific. We do everything in what we call “IWY Loop” which is from the instructor’s point of view “I do, we do, you do.” So there’s a new topic, the instructor will build something, and then he’ll build the same thing, given the same topic, as you build something alongside him; then you’ll build something while the instructor watches and critiques, and we basically do that loop again and again and again.

Meaning how far along does the student need to be in their education? Do they need to be familiar with the terminal, should they have a Mac? What are some of the unassumed prerequisites for a student to participate well in that kind of loop?

[00:15:56.23] So there’s a significant investment that you’re putting into people, right? You’ve seen the model be wrong, so you’ve defined a new model; you assumed this model could be right, and it requires some capital to make it happen. You described how your economics are, that if you get a couple people to pay upfront – and I’m sure the way you accept classes and build out classes is based on “Well, we have to have four, or five, or X pay upfront. The remaining amount can be pay zero” and we can define that model, which we haven’t done yet, but… It seems kind of interesting how you’ve done that, because you’ve got to invest in people, and that means you have to have the right people in place. So this prerequisite - has that always been there, or did you sort of like stumble upon it and said “Wow, we really need to have a filtering mechanism… How do we do it? Here we go.”

Yeah, so we started out by just teaching introductory classes to get people interested, and then as we kept going on as a school, we realized all the people who are performing the best are the people who did that introductory class; people who haven’t can be confused, or they can be behind, or they’re moving at a different pace, so let’s require it for everybody.

But yeah, every student costs us thousands and thousands of dollars, so we have to think very carefully a) before we accept somebody, and then b) they’re not putting in cash upfront, so we have them put in a little bit of sweat equity instead.

Let’s talk about that sweat equity, because you kind of own a bit of the future of a person in terms of their earning potential, but it’s only based on if they hit certain salary requirements… Can you walk me through what this zero tuition model is, and potentially even tease the stipend side of things, too?

Yeah. Basically, a student signs what’s called an income share agreement, which means they pay us a percentage of their income for two years after they get a job in the field that they studied for. If you’re studying to be a software engineer, the floor is $50,000, so you don’t pay anything unless you get a job that pays more than 50k in software engineering. Then you pay 17% of your salary for two years. And if it ever hits $30,000, then you’re done, and you stop making payments.

And the other side of that is that they can also opt to pay in full, which is part of your model, too. Can you break that part of it down? I’m assuming that you’re saying you’ve got a threshold; you’ve gotta get four or five – I don’t know how many are in a cohort, but there’s probably some sort of ratio that has to be paid upfront, versus zero tuition, as you’ve mentioned here.

Yeah, originally that was the case. Now we’ve raised almost 50 million dollars in VC, so we don’t have those kinds of constraints anymore. We still do have people that pay upfront, but a part of our students are using the income share agreement.

Yeah, it’s all of that… After Y Combinator, which gave us $120,000, we raised four million, and then we decided we could either wait it out with that four million and wait for our revenue to build up, or if we wanted to keep growing at the pace we were growing, we would have to raise a little bit more… So we ended up raising another 14 million, and then a little bit after that another 30 million. We raised a little bit more in between then. All in all, it’s to build out the platform, to build out a hiring network, to train people, and at the end of the day it only works out if students get hired and can pay us back.

What’s interesting is that you are sort of placing a bet, so to speak, on the future of software, and then software developer salaries. I mean, sure, we know where software is going, but there’s been bubbles in the past; I’m sure there’s probably some fee on your side, but you’re placing a huge bet on the future of software. Obviously, that’s the truth, right?

Yeah, that is correct. Software is one of the safest industries to place that bet in. The industry as a whole is growing much faster than even normal companies are… But yeah, eventually we’ll apply the model to other industries… But yeah, I think software was a pretty no-brainer place to start.

Basically, figuring out how to help thousands of people learn and get jobs… [laughs] Running the whole thing is pretty hard; making it all sustainable, making it work for everybody, that kind of thing.

I mean, everything… Right now it’s a whole lot of hiring. We’re just about to hit 80 people now, a lot of which are instructors and career coaches and student success people… But yeah, we’re hiring product, and engineering, and all over the place. The student growth is so fast that we have to build systems and infrastructure to help that scale, and that’s a lot of it.

I think it’s mostly unnecessary. I think we have made debt so cheap that people aren’t thinking hard enough about whether it’s necessary, and the incentives are misaligned. A lot of students are getting into a lot of really bad debt, and they don’t fully understand what’s happening.

Given the success of this model with Lambda School, what kind of message are you directly or indirectly sending to, say, universities or traditional schools where this debt is being applied? …liked you’d said; since it’s so inexpensive, the students aren’t questioning whether they should. They’re just doing it because it seems like it makes sense. “Mom and dad did it, so and so did it… I probably should, too.”

Yeah… I mean, in the early days, that was a battle that we fought a lot. There are other paths outside of the traditional educational model; you don’t have to go get a masters degree in computer science to be hirable. Luckily, the code bootcamp scene before us broke that down quite a bit.

Now we get 1,000 applications a week… It’s just not a problem anymore. We had to do right by the early students and do everything that we possibly could to help them get hired, and when that happens, word spreads pretty quickly. The vast majority of our students still come through word of mouth, so it’s pretty crucial that we don’t do anything sketchy, or treat anybody poorly.

Where’s the demographics, so to speak? Where do you see the most demand for Lambda School in the world? Obviously, we’d mentioned earlier - and I’m assuming that’s still correct - the United States and the European Union… Where of those two do most of your students lie?

[00:23:54.05] Mostly in the United States. We’ve got students in every state right now, and then a bunch of the countries and territories of the E.U. But generally speaking, we over-index a little to more rural areas, and then age of the students is kind of early thirties, late twenties, on average… But not everybody. We’re now seeing people drop out of some of the top schools and go directly to Lambda… So it’s a pretty broad spread; pretty young, pretty old, pretty urban, pretty rural… Kind of all over the place.

We touched on it quickly before, but it makes sense now to dive a little deeper… So you’ve got web development, data science, Android development, iOS development and user experience design… Where did you begin? You began with web, is that right?

Yeah, we began with web development, and then kind of added on from there as we’ve gotten enough employer demand to add a new program. And we’ve kind of just assumed that the students would always fall in line, which has mostly been true. Eventually, we’ll have to figure out how to shift people into the classes that are the most necessary… But yeah, it’s working pretty well.

Yeah, so we have more employers more desperate to hire Android developers than probably every other category… But not every developer wants to be an Android developer. So if I could wave my magic wand and force people to take classes, we would probably force more people to take Android development. But you don’t want to force people to do something they don’t want to do. That said, a lot of the people in web development - their main goal is just getting a job, and they’ll do whatever it takes to get a job. I think we could shift web development students to Android, and they’d be just fine.

How do these categories come up? Obviously, we know data science is a pretty big deal; we have a show here at Changelog called Practical AI; we love diving deep into all things machine learning, data science, all those different things… But Android - I wouldn’t imagine that it was that big, but I’m surprised to hear you say that it’s so significant for you. Then obviously iOS, and UX; UX is sort of at larger synonymous with web development. You need to have user experience designers out there and designers out there… So how did you map these different curriculums? Did it just sort of naturally appear, or were you like “We have to have iOS, we have to have Android”? How did this come to be?

Usually, everything we do we start by talking to employers. We talk to employers and figure out “What are your needs? What are you having a hard time hiring for? If you could wave a magic wand, what would there be available for you?” Then we go work backwards and create that, basically.

When somebody wants to tap into that with you, what kind of information do they need to bring? Is it just like, “Hey Lambda, I wanna inform you about the kind of engineers and software folks we need. Here’s my information.” How do they begin this relationship with you?

They would go to something like lambdaschool.com/hire, they’d fill out a form, we’d get on a phone call, we’d figure out what the right approach is. For most of them, if they’re hiring, we bring them in to do what we call a career day, and they do a presentation about their company and they start interviewing graduates immediately. Some have more specific needs; some people just email us and say “Hey, I really need a bunch of this. Why don’t you train this instead?” So it becomes pretty clear pretty quickly what the demand actually is.

[00:27:57.04] You have a pretty impressive job placement too, since we’re on the subject… 82% of graduates have jobs within 180 days. That’s pretty significant. I mean, compare that for me… As you’d mentioned before, you haven’t always been in education, but neither have I; what is that compared to other competing, bootstrapped coding schools and/or universities?

It’s interesting… It seems so logical, honestly, that it would make sense to say “Hey, employers, what kind of software engineers do you need? Okay, we’ll help you make those.” I almost feel like everyone else is starting on the other side, like “What’s cool out there? What’s shiny, what’s impressive, what’s moving the needle in terms of interest?”, but then does that actually relate to real jobs…?

Yeah, I think it speaks to our model. Most people are looking first and foremost at “What can I get students to sign up and pay for?” and then hopefully there’s something on the other side… Whereas for us, we don’t get paid unless they get a job, and that’s the harder piece of it. We could 10x our number of students tomorrow; it wouldn’t make us any more money, but we could do that. I mean, it would make us a little bit more money, but that’s a result of your incentives being aligned with the student.

Well, since you’ve mentioned that, what are the pillars of revenue for you? I would imagine that the bigger one or the most obvious one is tuition, or payback tuition. What are the other options you have for revenue?

Wow. I didn’t expect you to say that, for one; I think that’s pretty cool, that you are completely aligning with the student… Because as you’ve just said, if the student doesn’t make it through and get a job, especially over 50k, then you don’t get paid. So you’re incentivized to educate students to the point where they’re hirable, for one, and then not just hirable, but hirable at a higher, or I would say a middle mean of salary.

Some of that might be on the admission side. Maybe we’re accepting folks that we can’t get all the way there. And some of that is “What if we had a better hiring partner? Or a better class, or a better something, that would help them?” It’s that entire funnel, from “You’ve just heard about us” to “You got hired” - how can we make it better?

A lot of the time people get frustrated and quit too early. They look for a job for 3-4 weeks and then say “I didn’t find it. I’m not qualified”, which is obviously not the case, but people don’t believe us when we say that all the time. It really just depends. Obviously, that’s where most of the company spends most of the time, trying to figure out how to improve our hiring percentage.

Yeah, for sure. It’s pretty rare that you can’t get an employer who’s hiring software engineers to pay $50,000. I mean, it happens… Not in San Francisco it doesn’t happen, but I think net we’re in a pretty good spot there. It’s more just the binary “Does it work for you or does it not?”

[laughs] I love it. It’s ambitious. I’m not laughing because I’m laughing at you, I’m laughing because I love the ambitious. That’s huge, and we need that. We as an industry need that. We need someone like you all behind Lambda School to have that kind of ambition, because there’s certainly – we both know, I would assume at least, that as you said before, software isn’t going anywhere; the industry is growing. You plan to dip into other industries, but I think right now it would make sense where you’re at… That it’s not gonna go anywhere; and to keep going this route - we need that.

There’s gonna be people that are looking for more software engineers every single day, and we have a talent issue. What do you think about the talent issue out there?

Yeah, that’s the gap that we are built to close. We find places where there are not enough employees, and then we find places where there are people who can’t get jobs, and we match-make and we move one type of employee to another type of job. I think that’s a fundamentally missing piece of the economy. There’s no market maker for people, and that’s kind of crazy.

We’re still trying to figure out international; how to make this work at scale, internationally, in countries where there’s not the same kind of infrastructure around credit, and contract law, and stuff like that. That’s pretty difficult.

Do you think you need to solve that problem now, or do you think – I’m not saying isolate yourself and only camp out in the areas you are, which is the United States and the European Union, but do you really need to? What’s the draw to those other areas? Obviously, educate the world, but I mean you particularly as a business.

Yeah, I mean, I think if we’re actually going to do our job to help people shift from where they are to where they ought to be, that’s what is required. There are millions of people in other countries that are completely cut off from access to Lambda School right now, and we can fix that.

[00:34:35.02] We need to figure out what the right business model is in different countries, we need to figure out the compliance and the regulatory stuff, and then we need to hire and build out a school.

Let’s dream a little bit; let’s paint a big picture for the listeners. What is your biggest hope, your biggest dream for Lambda School? You mentioned already - which I think is kind of huge, but can you go bigger than that? Educating half a million software engineers; that’s pretty huge. What else beyond that?

That’s the North Star right now - how can we train half a million people a year and get them in place. If we’re doing that, we’re in a really good spot, and then we’ll have to figure out more ambitious goals after that.

More ambitious goals. Okay, so what’s on the horizon then for you? What’s something that most people don’t know about? It could be the stipend, it could be something else… What’s something that is maybe sort of new, or newish, or coming up soon, that you can share more details about?

There are a few countries we’re pretty close to getting into; I can’t talk about which ones yet, lest the regulators come raining down. There are other courses that we should be launching pretty soon here. Still software-based, but different than what we’ve done in the past… Yeah, that’s pretty much it for now.

We just launched a mentor program, where we’re pairing every student up with some local software engineer in their area, and they’re getting mentored once a week, once a month. Yeah, that’s pretty much it.

Yeah, I think the model is the easy part; saying “Hey, we’re not gonna charge people until they’re hired.” The difficult part is making it work, and that’s what we work on all day, every day. So yeah, do it. [laughs]

What do you think your magic sauce is, your secret sauce, for making it work then? Since you say that the model is the easy part, but actually doing it is the hard part. If you could sum that up, what would it be?

Well, awesome. Thank you so much for your time today. It was awesome having you on Founders Talk. We’re super-fans of what you’re doing. Obviously, we’re deeply invested in the future of software as well, and it’s – I kind of came to this conversation not knowing your motives, and I come out the other end happier to discover your motives are perfectly in line with the students, and your financial models are all based upon hireabilty and less about “Hey, let’s just get more people to buy a curriculum”, so to speak. You’re really about investing in the future of software engineers, and I think that’s awesome, and I thank you for that.